European Union regulators look set to bow to insurance industry demands for more time to adjust to new solvency rules, with the head of the EU’s insurance watchdog acknowledging that some of the measures would have to be phased in beyond an official start date of 2013.
Some insurers have complained of big open questions to be resolved before the beginning of 2013, when the so-called Solvency II rules are due to enter force.
The rules aim to better protect consumers by more closely aligning insurers’ capital cushions to the risks on their books.
“These are transition measures and not a postponement of Solvency II,” the chairman of the Committee of European Insurance and Occupational Pensions (CEIOPS), Gabriel Bernardino, told Reuters on the margins of an insurance conference on Wednesday. “One to two years will be sufficient. This will help the entry into force and no one wants to have disruptions in the market,” he added.
Rules on the treatment of hybrid capital, liquidity considerations, regulatory reporting requirements and the treatment of foreign subsidiaries in solvency tests are all candidates for staggered introduction, industry officials say.
Bernardino declined to discuss the areas that might be phased in from 2013, but said smaller insurers in particular needed time to adjust to the new rules.
Insurers are currently field-testing the new rules in the fifth quantitative impact study — known as QIS 5 — to see how they will affect capital and risk management systems.
Bernardino said the test would probably give regulators sufficient information to fine tune the rules in time for the Jan.1, 2013 start date. “I don’t think we will need an overall QIS again like QIS 5,” he said.
However, insurers insist the timetable to prepare for the new regime is too tight.”We (industry) are probably not ready for what we see in the current proposals,” Jean-Christophe Menioux, chief risk officer of Europe’s second-biggest insurer, AXA and chairman of an industry forum discussing the rules, told the conference.”It’s not a step, it’s a stairway,” Menioux said of challenges facing industry to adapt to the new rules.
Europe’s biggest insurer, Allianz, last week said it still had concerns about the proposed capital charges for long-duration life insurance business under the new rules. But it had few worries on the treatment of property and casualty insurance.
DISPUTED SYSTEMIC THREAT
Insurers are also slated to be added to a global list of financial companies that are so big or inter-connected that they could threaten the global financial system should they run into trouble.
Policymakers are mulling special surcharges for banks, and potentially insurers, that are seen as globally relevant, as part of the effort to head off future financial crises.
Bernardino said the question of a surcharge for systemically relevant insurers was still on the table internationally, but said policymakers need to understand that banks and insurers must not be treated in the same way.
Regulators are probing the inter-connections of banks and insurers. But since the liquidity problems that disrupted banks in the financial crisis play less of a role for insurers, the same regime should not apply to both, he said.
Similarly, the Solvency II rules should not simply be applied to pension funds, but the same risk-based approach that underpins Solvency II could be used to develop rules for the pensions sector, Bernardino said.
The European insurance industry body CEA this week urged EU policymakers to apply Solvency II principles to occupational pension funds in a bid to level the playing field between insurers and their pension fund rivals.
(Editing by Alexander Smith)
Was this article valuable?
Here are more articles you may enjoy.
FBI Says Chinese Hackers Preparing to Attack US Infrastructure 
Investment Funds File New Suits Over Lighthouse Insurance Collapse in 2022 
Why New York’s Attorney General Objects to Trump’s Bond Insurer 
JPMorgan Client Who Lost $50 Million Fortune Faces Court Setback 
